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Healthcare RE Attracts New Debt & Equity Investors

As healthcare real estate moves from a niche property type to mainstream, new debt and equity investors are entering the space, according to experts who spoke at Connect Healthcare on a panel titled REITs, Private Equity, and Foreign Capital Shaking Up the Market.

Sabra Healthcare REIT’s Talya Nevo-Hacohen explained that the cost of capital for publicly-traded REITs has gone up as interest rates have increased. As a result, these REITs have been pushed to the sidelines for acquisitions.

Private equity has filled the void left by publicly-traded REITs, according to American Healthcare Investors’ Stefan Oh. The flood of money has compressed cap rates and made it more difficult to find deals.

However, private equity interest isn’t entirely bad, according to LTC’s Clint Malin. He pointed out that private equity buyers make it easier for public REITs to recycle capital. “A liquid market is better for all of us,” he contended.

Several panelists said foreign capital is aggressively seeking investment opportunities in the healthcare sector through funds and joint venture partners. CBRE’s Shane Seitz pointed to FOSUN International as an example of foreign capital that has invested in healthcare real estate. [The Chinese investment firm acquired majority interest in MOB developer Flagler Investment Healthcare earlier this year.]

“We’ve seen foreign capital investing, but it’s behind the scenes,” Seitz said. “You don’t know that it’s actually their capital being deployed because they’re deploying it through a fund.”

Seitz added that foreign investors typically learn the business while putting capital into funds, and then in a couple of years, start to invest directly. Nevo-Hacohen agreed with Seitz, adding that Sabra Healthcare REIT is frequently approached by foreign capital looking to for a JV partner.

“We’ve seen [foreign capital] look at actually making significant investments in seniors housing companies, not just real estate,” she noted. “They’re making direct investments.”

On the debt side, debt funds are the “biggest new entrants” to healthcare real estate, Seitz said. “We’re seeing more and more new funds being created to invest in healthcare,” he noted, pointing to the $3.1 billion debt fund raised by Canada Pension Plan Investment Board and GIC.

To that end, Capital One’s Natalie Sproull noted that competition is increasing on the lending side, encroaching on Capital One’s position as the top lender in the healthcare real estate space. There’s so much interest that other banks are approaching Capital One about running syndications, she added.

The panel moderator, Cushman & Wakefield’s Travis Ives, concluded that healthcare real estate will continue to attract capital because investors consider it a “defensive” sector that offers more attractive returns than multifamily or industrial.

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